A friend of mine recently squeezed out her third child - just in time to qualify for more tax savings! No, not third child this year, but it is her third child since 2008. Anyway, we were joking about receiving the Child Tax Credit which led into a discussion about “What is a Tax Credit?”
Tax credits can have a major impact on your filing situation at tax time. These tax credits are great ways to legally reduce your tax obligations and often resulting in a larger refund for you. This will allow you to pay off more debt, save for major expenses, or go buy that big screen TV you have been seeking.
There are two different types of tax credits. They are refundable or nonrefundable tax credits. Refundable tax credits are credits you receive as a refund if your credit outweighs your liability. With nonrefundable tax credits, you don’t qualify for a refund if your credits are more than your tax liability.
It is important to understand the difference between a tax credit and a tax deduction. Tax deductions reduce your taxable income not the tax burden that you owe.
It is important to work with your Liberty Tax specialist so that you stay up to date on the different tax credits. The IRS changes tax laws like my friend will be changing diapers, so please let us help you in this important matter.
Here are some important tax credits:
- Child Tax Credit—My friend will be happy to know that she may qualify for a $1,000 tax credit for each of their three children as long as they meet certain requirements. We will be happy to explain the ins and outs to see how much you are qualified to receive.
- The Earned Income Tax Credit is a refundable federal income tax credit for low to moderate income working individuals and families. It was originally created as an incentive to work. Not sure why pay for a hard day of work isn’t incentive enough, but it is there for your taking!
- Retirement Savings Contributions Credit—If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be able to take a tax credit.
Again, another incentive to get you to save! As though a happy retirement wasn’t incentive enough!
My friend was pretty happy that her baby came before New Year’s Day 2011 so she would qualify for the tax credit. The neat thing is that any baby born up until 11:59pm on New Years Eve will qualify for the child tax credit - the same credit you'd get if you had the baby at any time earlier in the year. And, before you sending me scathing emails, the baby is doing just fine and Mom is resting peacefully, with an extra grand in her pocket!
Take advantage of all of the “incentives” Uncle Sam tosses out. Allow the professionals at Liberty Tax to help you with your tax credits, deductions, and all the questions you may have
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.